Implications of the COVID-19 pandemic for global sustainable finance: An internal framework for response strategies

The UN Environment convened Financial Centres for Sustainability (FC4S) recently published a working paper, supported by EIT Climate-KIC, on the implications of the COVID-19 pandemic on sustainable finance.

Not for decades has the financial system had to deal with a crisis of the magnitude of the COVID-19 pandemic. In a few short weeks, the financial system as we have known it has been turned on its head and must now deal with issues—present and future—that are quite literally life-or-death challenges. There is little doubt the pandemic will be considered one of the most significant global events since World War II, which shaped our current global economic and financial order. Now, the future of our financial system is uncertain—but it is increasingly clear it will not go back to its pre-crisis form.

Clearly, organisations and governments must give priority to addressing the immediate health issues, as well as the impact of shutting down our economies on the poor and vulnerable. But as we do that, we should also be thinking about how we can rebuild when the crisis fades and generalised economic activity once more becomes possible. Both the disruption we are living today, and the necessary delays in initiating large-scale economic recovery programmes, must not be seen simply as a disaster—but as an opportunity to rethink the structure of the economy, and to plan for how it can be aligned with a resilient, low-carbon future.

Pandemics and climate change both have huge socioeconomic consequences triggered by physical shocks—setting them apart from previous financial crises triggered from within the financial system itself. Physical shocks can only be solved by addressing the root causes whereas financial shocks can often be dealt with by restoring confidence. Both are examples of non-linear risks where socioeconomic impacts grow non-linearly once thresholds are breached. Solutions to both pandemics and climate change require strong global cooperation across the public and private sector.

In this dynamic context, this paper was developed to support thinking on how to respond to the pandemic from a sustainable finance perspective. Specifically, this paper has two objectives:

  • The first is to set out what we know about the ways in which the many different components of our sustainable financial system—market actors, policymakers, regulators, and international institutions—are thinking, planning and reacting to the pandemic, with a focus on implications for sustainable finance markets. As such, it is a work in progress, and will be updated and refined over time as new information and new ideas come to our attention
  • The second objective is to set out a framework for assessing what levers may exist to strengthen the role of the financial system in supporting a low-carbon recovery, and the prospective roles for different communities of actors

Read the full working paper to learn more:

read the report

 

EIT Climate-KIC’s COVID-19 Response: We believe the world needs a simultaneous, multi-dimensional response to COVID-19, to address both the devastating immediate impacts on people, health systems and economy, and longer-term considerations. This includes the need to act now to ensure economic recovery is aligned with climate and Sustainable Development Goals commitments as we consider ways to protect, reboot and regenerate economies. EIT Climate-KIC’s COVID-19-related communications will respond to all of these needs.  

Please visit our COVID-19 Response Hub for more information.

 
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